2020 will be remembered as a year of many firsts, as households, corporations, central banks, governments, as well as private and public entities alike, had to deal with the massive blow of the coronavirus pandemic. However, from an investor’s perspective, and if we look at the main asset classes we cover in our multi-asset strategy, 2020 was not an outlier in terms of performance (in euro terms). What lurks under the surface of apparently average numbers is the growing divergence between the winners and the losers of the crisis. Be they regions or sectors, some succeeded in either mitigating the impact of the crisis or in answering newly created consumer needs. More than ever, active portfolio management skills will be put to the test in the new year.  

As 2020 nears its end, we draw our first conclusions from this pandemic year.


2020 cross-asset class performances in local currency and as at 30 November 2020 show that most asset classes performed positively. In fact, the only laggards were oil and European equities, the latter weighed down by the additional challenge of negotiating the terms of the UK’s withdrawal from the European Union. Oil was the worst-performing asset class, with demand for the black gold dropping as soon as the virus broke out. Having just recently started a recovery, it was one of the best performers in November.

If we look at it from a relative perspective and compare them to Eurozone inflation, all asset classes outperformed, except for Eurozone equities, commodities and oil. Compared to previous years, and going all the way back to 2004, 2020 looks like an average year.

Digging deeper, what absolute or relative performance does not reveal at first sight is the widening gap between not only winning vs losing regions but also between winning vs losing sectors as the crisis has evolved. These have challenged political governance and consumption patterns and thereby asset allocation strategy.

The game-changer

Moving forward, the vaccine is the game-changer. Assuming that the side effects will be few and far between, and that there is no virus mutation, by mid-2021, half of the Western population should have been vaccinated. H1 2021 should hence see Western economies return to their long-term trend growth. It is this expected strong economic data that will drive the catch-up in growth.

Past this mechanical catch-up, it is policy support from both central banks and governments that will ensure the transition from mechanical catch-up to sustainable recovery. The Great Lockdown – as the IMF calls it – will thereby push (a) public debt to the

highest levels ever and (b) central bank balance sheets into the USD trillions as they facilitate the fiscal response by financing large portions of the debt build-up.     

A road to recovery: value rotation

1H 2021 will focus on the transition to a sustainable recovery.

Such a paradigm shift should pave the way to a new rotation. Despite their high valuation, equities are currently less expensive than bonds. Within equities, as the performance of value stocks is well correlated with the yield curve, and because value stocks were hit the most during the crisis, we expect the recent rotation into value assets to continue well into 2021. This implies exposure to:

  • sectors like European banks and US banks, which have ample room to re-rate;
  • other “back-to-work” names;
  • countries, including the UK.

The UK, which appears as a deep value play, was hit by the coronavirus in the midst of negotiating  Brexit terms after the June 2016 referendum. Currently, positioning is at a record low. The currency is among the most undervalued foreign exchange assets in Europe, and the FTSE 100, the most “value” index in the region, has experienced its worst track record since 2015. So far, no compromise has proved possible on fair competition for businesses or EU fishing rights in UK waters. Hence the UK and the EU have not yet reached an agreement on Brexit. While a soft Brexit is hoped for, a hard Brexit remains a possibility.

Other outliers include:

  • Latin American equities, specifically Brazil.

Within fixed income, and specifically credit, the road to recovery means that spreads are back at a historical low, leaving only a little space for appreciation in high yield and investment grade bonds in both Europe and the US.

Both emerging debt and emerging sovereign debt will still boast the best carry-to-volatility profile.

2H 2021 might be a little bumpier, as markets will face uncertainty in several areas:

  • European politics, as Germany elects a new Chancellor;
  • monetary policy, as exit strategies need to be outlined – without taper tantrum;
  • geopolitics, as relations between China and the US are re-defined in the post-“America First” era;
  • profit growth, as markets catch their breath after the earlier strong but mechanical rebound.

Resilience is key: keep longer-term winners

In the longer term, resilience is key. The sectors and the regions that ended up winners in this sanitary crisis, because they benefited either from the shift in consumption or from a sustainable and smart governance, have gained a long-term lead over the others.

In terms of regions, China and Germany stand out. In terms of sectors, tech, healthcare, clean energies and renovation will be to the forefront of new and stable investments.

China was first to (sustainably) contain the virus. The country’s economy has recovered and is moving towards more consumption that will increase with urbanization. The domestic and biggest Chinese A-shares will benefit from the rebalancing economy. Germany has stood out for its strong governance and strong support to households and corporations. Its equity market has performed well and should keep benefiting from its cyclical exposure. It is more diversified than its peers and, specifically, towards Chinese growth, another helpful feature in the German recovery.

The world post-Covid will favour tech companies in the digital transformation. Working from home may not become the new norm but it needs to be doable in a heartbeat when needed. It comes with a heavy load of IT-related needs and investments.

The post-Covid world will also favour healthcare companies and over the long term. Not only because of the current pandemic but also because of the world’s demographic. Steadily ageing populations have increasing needs. The wealthier G20 population is spending more with age.

Finally, neutral carbon emission will trigger significant investments. The transition towards, inter alia, the European Green Deal and the China plenum is moving fast.

Our current multi-asset strategy

With this knowledge, and confident that medium-term perspectives have improved, we prefer equities to bonds and are currently overweight equities.

We have a preference for European and Emerging equities. We are neutral US and Japanese equities. In terms of thematic tactical opportunities, we believe in a rotation towards value sectors, including the European and US banking sectors, which should benefit from the bottoming-out of the yield curve.

Our thematic core convictions lead us to believe in a structural change post-Covid 19 that will favour equities in the digital and pharmaceutical sectors as well as Asia, a societal and environmental change that implies investing to benefit from adaptation and mitigation.

Within fixed income, the strategy, being more risk-on, has led us to take exposure to convertible bonds. We also hold emerging debt, as it has the highest carry. We have decreased our exposure to investment grade credit (Europe and the US).

We also maintain a short duration bias, an underweight exposure to government bonds in Europe (on core countries) and an overweight in peripheral European bonds.

Our currency allocation is short USD vs. EUR, short USD vs JPY and long NOK vs EUR.

Risks remain present and will require agile and active portfolio management. We do not exclude the possibility of the vaccine hitting a road bump in the manufacturing or distribution process or even in its acceptance by the population. Our hedges include gold and an optional strategy on European equities.